TaxMar 18 2020

Govt caves in to IR35 delay amid Covid-19 crisis

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Govt caves in to IR35 delay amid Covid-19 crisis

The government has postponed the controversial reforms to the IR35 tax rules until 2021 as it attempts to alleviate pressure on businesses and individuals amid the Covid-19 fallout.   

Last month the Treasury confirmed it was to push ahead with changes to the rules, which would see every medium and large private sector business in the UK become responsible for setting the tax status of any contract worker they use from April 2020.

Previously the rules had only applied to the public sector. 

Despite calls for the reforms to be scrapped, the Treasury maintained the changes were necessary to address the "fundamental unfairness" surrounding non-compliance with the current IR35 rules.

But in an unexpected announcement to the House of Commons last night, Steve Barclay, the chief secretary to the Treasury, confirmed the reforms would now be postponed until April 2021. 

The MP for North East Cambridgeshire was, however, keen to emphasis the move was merely a delay and not a cancellation of the reforms.

Mr Barclay said: "I can also this evening announce the government is postponing the reforms to the off-payroll working rules, IR35, from April 2020 to April 6, 2021. 

"This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals.

"This is a deferral not a cancellation and the government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company pay the same tax as those employed directly." 

It follows calls from members of the House of Lords earlier this week which urged for the IR35 tax rules to be postponed in light of the coronavirus fallout and its economic impact. 

Lord Forsyth of Drumlean warned to push forward with the changes in the current landscape would be "perverse" and instead suggested a delay period of six or 12 months. 

Tim Stovold, partner at Moore Kingston Smith, said: "This decision should have been made well in advance of the April 6 launch date but coronavirus has finally convinced the government to delay this catastrophic change to the IR35 rules.

"This will be some comfort to the freelancer population who know that they will be the first overhead to be cut as businesses prepare to weather the storm ahead as the economy slows down.

"Business owners will be angry as colossal amounts of time, money and energy have been put in to preparing for this regime change only to hear that it has been kicked into the long grass for now."

Introduced in 2000 IR35 is an anti tax avoidance rule that applies to all contractors and freelancers who do not fall under HMRC’s definition of being self-employed.